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# Economic problem

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1. If the price of jeans rises and the quantity sold also rises, does this mean that the demand curve slopes upward? Why or why not?

2. If the prices of most goods are rising by an average of 15 percent per year, but the price of gasoline rises just 10 percent per year, what is happening to the real prices of gasoline and how would one expect consumers to react in adjusting their market basket of goods?

3. Suppose a producer raises the price of a good from \$4 to \$7, and the quantity sold drop from 250 to 200 units. Is the demand for the good elastic or inelastic? What is the precise coefficient of the price elasticity of demand in this case?

4. If the government subsidizes flood insurance, what will happen to the price of that insurance? What will happen to the value of the property that may be lost due to flooding? Why

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#### Solution Preview

1. If the price of jeans rises and the quantity sold also rises, does this mean that the demand curve slopes upward? Why or why not?
At the beginning let us say that one situation in which with an increase in the price of jeans the increase in the quantity of jeans sold also increasing is that the demand curve is upward sloping.
On the other hand there are several other situations in which with an increase in the price of jeans the quantity of jeans sold also increasing can be observed. One obvious example is that of inflation. With inflation we may observe a situation where with an increase in the price of jeans there is an increase in the quantity of jeans sold.
The other situation where you may observe an increase in the price of jeans and there is an increase in the quantity of jeans sold is when there is an increase in the demand for jeans. There are several reasons why there may be an increase in demand. An increase in income will lead to an increase in demand for jeans, an increase in the number of consumers will lead to an increase in demand for jeans, a decrease in the price of a compliment goods may lead to an increase in demand for jeans, or an increase in the price of substitutes may lead to an increase in demand for jeans.
2. If the ...

#### Solution Summary

This explanation provides you a comprehensive argument relating to Economic problems

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